Strategic Hotels to make Essex House a JW Marriott

(Crain's) — Strategic Hotels & Resorts Inc. confirmed it is buying the Jumeirah Essex House hotel in New York City and said it plans to convert the 509-room property into the first JW Marriott in Manhattan.

The Chicago-based real estate investment trust said Friday it is paying $362.3 million for the hotel, financing the acquisition with a $190 million loan from Bank of America. Strategic has signed a 50-year management agreement with Marriott International Inc. and plans to rename the property the JW Marriott Essex House New York.

Crain's sister publication first reported Tuesday that Strategic had agreed to buy the hotel from Dubai Investment Group, marking the REIT's return to the New York market. A Strategic affiliate sold the hotel to Dubai for $440 million in 2005.

In addition to the loan, Strategic said it is considering bringing in a joint venture partner and other financing options, including property sales, to raise cash for the acquisition. The company plans to spend an extra $18.3 million sprucing up the hotel. The deal is expected to close Sept. 7.

“The combination of the Essex House Central Park South location, Marriott's outstanding distribution and world-class customer service, and our successful longstanding relationship with the Marriott brands, clearly positions the Essex House for success,” Strategic President and CEO Laurence Geller said in a news release.

Mr. Geller oversees a portfolio of 17 hotels, including the InterContinental and Fairmont hotels in Chicago. The acquisition marks a shift for Strategic, which has been in defensive mode since the financial crisis, suspending its dividend and selling off hotels to shore up its balance sheet after a near-death experience during the crash.

The REIT has made few acquisitions in the past year or so, buying out its partner in the InterContinental and taking over Four Seasons hotels in Jackson Hole and Silicon Valley in stock-financed deals. But the Essex House acquisition is its biggest deal since the crash.

“We will continue to evaluate and act upon prudent hotel investments that complement our portfolio and create shareholder value,” Mr. Geller said in the news release.

The company recently started paying dividends again on its preferred shares but has yet to reinstate its common dividend.

Strategic shares were flat at $5.94 in Friday-morning trading. The shares have returned 7.7 percent this year, vs. a 7.9 percent negative return for the Bloomberg REIT Hotel Index.